The perceived disparity between a company’s CEO and its average worker has been a trope of the left and an obsession of the news media for decades. The argument goes that a CEO’s pay comes at the expense of rank-and-file workers, and fuels a level of animosity that necessitates a government response. It is a canard that would be rightly ridiculed in any other sector of our society.
Television’s top news anchor, NBC’s Brian Williams, earns a reported $13 million a year to read the news. His pay packet is 350 times the earnings of the average TV news anchor, reporter or correspondent, who pull in around $37,000 a year. This disparity far surpasses the 150-1 ratio earned by the average CEO, according to Bloomberg.
If Brian Williams’ salary were brought in-line with the average amount CEO pay eclipses that of rank-and-file workers, his earnings would be around $5.5 million a year, rather than $13 million. No one is suggesting Mr. Williams take such a pay cut.
The average actor and actress in the US earns about $40,000 a year. The average professional athlete in the United States earns about $170,000 a year. Nobody would expect Matt Damon or LeBron James to take a massive wage cut to bring themselves into the 150-1 CEO pay average. Keep in mind, though, that, like Mr. Williams, Damon and LeBron are earning hundreds of times more than the average person doing the exact same job.
The disparity between the earnings of CEOs and their employees is a comparison based on people doing entirely different jobs. If it is ludicrous to suggest that Brian Williams earnings should be no more than some multiple more than someone else doing his job, it is patently absurd that a CEO should face such a limit for doing a fundamentally different job than someone else.
CEOs often make millions of dollars a year for doing an exceedingly difficult job. A CEO must shepherd enormous enterprises with thousands of employees through a highly competitive and constantly evolving global marketplace. A misstep can cost billions of dollars. Indeed, the average tenure of a CEO is just eight years, down a full three years from a decade ago.
If a CEO gets the decisions right, though, billions of dollars in wealth can be created and, in some cases, entirely new markets can be born. Would Apple shareholders rest easier if they knew Steve Jobs or another CEO didn’t earn more than some multiple above the average Apple worker?
Obviously, not every CEO is Steve Jobs. Neither is every CEO Enron’s Ken Lay, whose asleep-at-the-wheel management style vaporized billions in shareholder and employee equity. These decisions must be left to the market, because no panel of experts can divine the correct amount of anyone’s pay.
No panel of experts would deduce that Brian William’s skill at reading text was worth 350 times the average pay of other TV presenters. That is a decision made best by his bosses and the viewing public. This truth is even more pronounced for CEOs.